Covid-Era Subsidies Are Only Going to Worsen Global Trade Frictions



Michelle Jamrisko | Bloomberg

Businesses saddled with Covid-19 risks this year will soon have to tackle a host of other headaches when the pandemic eventually fades, including a highly fraught debate over what’s fair — or not — in government subsidies.

That’s one of the global trade lessons from a panel of government and business experts hosted last week by Bloomberg and the Asia Society’s Australia chapter. Tariff wars were already roiling the world economy. Now everything from fiscal bailouts to food protectionism may draw scrutiny from institutions like the Geneva-based World Trade Organization that try to enforce rules against unfair public assistance in otherwise free global markets.

“That’s got a long way to go, particularly as countries re-evaluate what they’re doing in their own national interest” to support a particular airline, product, industry or type of manufacturing, said Michael Byrne, Australia’s international freight coordinator-general.

“There will have to be a different framework about what is deemed ‘compliant’ or not, and I think the political class will have to take a fair bit of time looking at that,” said Byrne, whose government-appointed role involves liaising with businesses to ensure the trade lanes remain as smooth as possible amid still-tight mobility restrictions.

Such questions around renewed nationalism exacerbated tensions between open and closed economies during the crisis, said Deborah Elms, founder and executive director of the Singapore-based Asian Trade Centre. That friction is set to worsen, forcing businesses to re-evaluate their supplier bases.

“The default will be: closer to home, regional agreements, bilateral agreements, where firms — if they’re smart — will start leveraging these opportunities,” she said.

Among the other supply-chain lessons the panelists outlined, for the pandemic era and beyond:

  • Human relationships count. “The demand signals have been all over the place,” which has made rethinking supply chains hard to do, but having close relationships with all partners has helped, said Nick Mann, managing director of Australia and New Zealand for H&H Group. His business bought raw materials over finished goods this year, to see where demand settled and to better judge supply.
  • Supercharge your digitization. Businesses already thrust into a digital revolution have to do more coming out of the pandemic, said Maggie Zhou, managing director of Australia and New Zealand for Alibaba Group. “You will better understand your consumer, and supply better for your consumer” as businesses cater to the digital audience. Alibaba is focusing more on what its 870 million mobile app users want, and making products in response.
  • Be wary of the blockchain boom. In response to an audience question, Elms was skeptical that blockchain would catch on widely anytime soon. Governments would either have to approve such a system or at least allow it to happen. “They have no idea what you’re even talking about when you use the word ‘blockchain’ and they don’t understand how it would work, and they’re not convinced this is a good thing,” she said. Businesses are likely to be disappointed by how quickly this can happen, though trade financing or bank transactions between suppliers are likely to sprout first, and then regulation will follow, she said.

Michelle Jamriskco is a Bloomberg Senior Asia Economy Reporter. 

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